Nasdaq, Russell 2000 Within a Whisker of a Breakout

by Sam Collins | March 19, 2014 2:05 am

Nasdaq, Russell 2000 Within a Whisker of a Breakout

Stocks were strong for the second day, with the S&P 500 gaining 1.7% for the week. It is the best two days for the stock market since Feb. 6-7. The Russell 2000 small-cap index led all other indices on Tuesday, jumping1.5%, while the S&P 500 gained 0.7%.

Investors put aside concerns over Russia’s annexation of Crimea when Vladimir Putin stated that Russia does not want a breakup of Ukraine. It was this comment that resulted in a broad stock market rally.

February housing starts fell 0.2% to a seasonally adjusted annualized rate of 907,000, which was just above expectations.

Dow component Chevron (CVX[1]) gained 1% after being added to Credit Suisse’s Focus List. Microsoft (MSFT[2]) jumped 3.9% as reports circulated that it may release Office for the Apple (AAPL[3]) iPad. Biotech stocks were strong, rising 2.6%, and helping the Nasdaq to a gain.

At the close, the Dow Jones Industrial Average was up 89 points to 16,336, the S&P 500 gained 14 points at 1,872, and the Nasdaq jumped 53 points to 4,333. The NYSE primary market traded 585 million shares with total volume of 2.9 billion shares. The Nasdaq crossed 1.9 billion shares. Advancers outpaced decliners on both exchanges by over 3.2-to-1.

Until Tuesday, the S&P 500′s reversal from about 1,840 appeared dubious. However, the day’s rally, which punched through the 20-day moving average at just below 1,860, places it in a good position to attack March’s closing high at 1,878. Also note that its MACD has abruptly turned up — a positive indication.

Tuesday’s most positive development was the strength of the small- and mid-cap stocks. Two strong days have established the Nasdaq’s January breakout point at 4,246 as a key line of support. It, along with the Russell 2000, is leading the market. And both charts (Russell not shown) are within a whisker of a breakout.

Conclusion: Many analysts will conclude that Tuesday’s rally, led by the small- and mid-cap stocks, accompanied by low volume on the NYSE, and lacking in breadth on the S&P 500, is of concern. But for two years now, when the small- and mid-caps have led, the rest of the market got in step.

And if Tuesday’s rally was merely a result of a reactive rally due to the easing of tensions in Ukraine, then I ask, what drove prices higher on Friday and Monday?

My guess is that the lack of volume is due to the uncertainty surrounding the Federal Reserve’s first meeting with its new chair, Janet Yellen. That meeting starts today and all eyes will be on it. A hint of a continuation of an easy money policy could result in a breakout, but if the Fed decides to accelerate its cutting of the stimulus package and goes for a small increase in interest rates, look out below.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[5].